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Economic zone tax breaks create disparity

Firms outside the zones may lose competitiveness

Sohel Parvez
The tax exemption benefit given to industrial units inside the economic zones has created disparity between factories outside the industrial enclaves, raising fears of uneven competition among firms producing the same products.
The National Board of Revenue in 2015 declared tax benefit on income of businesses inside the economic zones for 10 years based on recommendation from the Bangladesh Economic Zones Authority (Beza) to promote
investment and industrialisation in the country in an organised manner.
Tax exemption would be applicable on incomes from all sorts of goods and services to be generated from investment inside the economic zones.
Since then, the Beza approved 10 private economic zones apart from developing sites by itself.
In the private economic zones, a number of factories churning out edible oil, cement, motorcycles and leather goods has been set up.
In government-owned sites, entrepreneurs have shown interest to set up food and agro-processing factories, textile, leather, pharmaceuticals, steel, ceramic, chemical and paint plants, according to Beza.
As the factories inside the economic
zones will enjoy tax breaks, especially waiver from paying advance income tax (AIT) and advance tax (AT) during raw material import, they will be at an advantageous position in terms of cost compared with firms outside the zones, said Md Shafiul Ather Taslim, director for finance and operations at TK Group.
"Cost to make the same product will be different because of producing in two different premises. It will be tough for small firms to sustain in the competition," he added.
TK, one of the major commodity importers and processors, and some other firms shared their concerns with the NBR last month after two major commodity suppliers - Meghna Group of Industries and City Group of Industries — started processing edible oil by establishing plants in their respective economic zones.
Later, the NBR sat in a meeting in the middle of last month.
At the meeting, NBR Chairman Md Mosharraf Hossain Bhuiyan said economic zones are required for industrialisation but because of tax incentives unequal competition has been created within the same industry, according to the meeting minutes.
Industry insiders said the difference in tax benefits will not only create uneven competition among firms in the commodity market but also in other sectors.
The meeting decided to send the proposal to Beza to change the rule regarding tax incentive to commodities.
However, Beza said the tax benefit have been offered to encourage planned industrialisation, encourage compliant and environment-friendly production as well as discourage scattered development of factories.
Beza Executive Chairman Paban Chowdhury acknowledged that there are some differences in income tax and without incentives investors will not feel encouraged to set up factories in the zones.
"We want all large industries to come to one place. The government will not have to provide gas, electricity and water everywhere to facilitate industrialisation. It will be able to provide all services in a cost-effective, regulated manner." There is also the issue of establishing effluent treatment plants.
“There are some incentives in economic zones and those who will establish industries here, levels of their compliance will be high because of regulation. The issue of compliance is also equally important," Chowdhury added.
Beza said all factories will eventually have
to relocate to EZs as per law.
Mostafa Kamal, chairman of Meghna Group of Industries (MGI), said his group has cement factory outside the economic zone but it is not questioning the tax benefits enjoyed by Aman Cement Mills set up in the Aman Economic Zone, another private economic zone.
The government offers tax benefits to promote industrialisation in regions that are lagging behind. "It is the global norm to give tax holiday when investment is made in underdeveloped areas. None will invest there unless incentives are given."
Kamal said the major steel makers are planning to set up steel mills inside the economic zones.
"What will happen then? Should those who have mills outside say that steel mills cannot be established in economic zones," he said, adding that no one would go for huge investment unless there are incentives.
Chowdhury said there are bound to be some impact with any change "But ultimately all industries will be benefited," he said.
On the issue NBR Member for Income Tax Policy Kanon Kumar Roy, said the NBR is examining the issue and will sit with the Beza.
"No decision has been taken yet The issue needs to be discussed with all the related agencies. Complaints might not come unless there are disparities, but what really happens needs to be examined." He suggested entrepreneurs should set up industry in economic zones.
"You should take the opportunity. You cannot ask for scrapping," he said.